JD Sports: Why Peter Cowgill’s scandal-stricken exit was only a temporary blip in the brand’s race to the top
JD Sports has no problem showing rivals how it’s done.
This morning the ‘king of trainers’ kicked off its five year growth strategy, with a proposed acquisition of a leading French sports brand Courir, costing the brand a weighty £425m.
As share price for JD Sports soared over three per cent this morning, it’s clear that investors remain confident about chief Régis Schultz ambitious plans for the company to become a “powerhouse” in the athleisure space.
Courir has around 313 stores across Europe and a further 36 stores which trade under franchise agreements as Courir in North West Africa, Middle East and French overseas territories.
“Securing greater control over the long-term development of JD and prioritising the development of the JD brand is a key pillar in our growth strategy in Europe,” Schultz said.
“It will give us simpler decision making which will allow us to use our assets with more efficiency. At the same time, it will considerably simplify the group operations,” he added.
In February, the former B&Q boss unveiled that he would spend up to £3bn to open over 1,000 new JD Sports in the coming years.
“JD Sports outlined ambitious expansion plans including spending £500-600 million a year with over half of this on new stories,” Victoria Scholar, head of investment, interactive investor said.
“It is also targeting double-digit revenue growth and operating margins. The acquisition of Courir is its first deal since outlining the new strategy this year, and will help JD Sports to expand its footprint in France.”
She added: “Perhaps this could be the start of further M&A at JD Sports to accelerate its growth strategy. Investors are cheering the announcement with shares in JD Sports up by more than three per cent at the top of the FTSE 100, extending its year-to-date gain to almost 29 per cent.”
JD Sports has quickly emerged as one of the strongest contenders in the retail space, performing marginally better than rivals such as Asos who are expected to post another half-year loss tomorrow.
“Athleisure wear and full on sports gear sales have rather defied the cost-of-living crisis as the post-Covid world of work is much more relaxed and a healthy lifestyle a highly prized commodity,” Danni Hewson, head of financial analysis at AJ Bell, said.
“JD Sports wooed investors with ambitious expansion plans and now it’s putting its money where its mouth is. Investors will note that the deal requires JD Sports to take on a chunk of debt but it’s debt is tied to a highly profitable business that’s managed to keep its head way above water despite current price pressures.
“Integrating the two businesses should allow for additional cost savings and increase the company’s buying power when it comes to those big sporting brands, both things that should help margins in the long run,” he added.
Rosy future for once scandal-stricken firm
While JD may be ‘wooing’ investors now, last year the reputation of the brand hung in the balance, when its long standing chief Peter Cowgill was forced to depart after he was fined £4.7m for breaching rules around a blocked merger with Footasylum the previous year.
The CMA slapped Cowgill with the fine when he was caught with Footasylum’s chief Barry Brown in a car park to discuss a blocked takeover and natter about commercially sensitive issues.
However, the impact of Cowgill’s scandal stricken exit appears to have only temporarily wounded confidence in the brand, as it remains on track to post pre-tax profits of more than £1bn for the year ending on 3 February 2024.
John Coldham, retail partner at the law firm, Gowling WLG, said: “JD Sports is clearly making ambitious inroads into its well-publicised five-year growth plan, as it looks to acquire a network of recognised sports retailer outlets throughout Europe.
“This will allow the business to gain easier access to these markets while benefiting from combined supply chain efforts to enhance the current offering, as well as increasing the overseas presence of the JD brand itself.
“Of course, competition at this level with the likes of the ever-expanding Frasers Group is likely to drive further value for consumers as we move into the crucial summer season.
“It will be interesting to see how others respond to this news in terms of optimising their own acquisition prospects and supply chain efforts to better guarantee this value as brands compete more than ever to retain customers and attract new ones.”